Genuine partnership test after family disruption: living together, shared banking, or one partner's management did not make the deed sham.

A partnership deed executed after disruption of a joint Hindu family was treated as genuine, not a sham, where the surrounding facts supported a real partnership. Joint living and messing after disruption did not by itself negate the arrangement, exclusive management by one partner was consistent with the deed, and continuance of the bank account in the former style was not inconsistent with genuineness. Purchase of stamp papers before disruption and delayed registration under the Partnership Act were held legally immaterial because such registration was not compulsory and was not required for registration under section 26A. The material on record did not support a colourable arrangement.

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Issues: Whether the partnership deed dated 3 February 1949 represented a genuine partnership or a sham transaction for the purpose of registration under the income-tax law.

Analysis: The facts found showed a disruption of the joint Hindu family, followed by the execution of a partnership deed among the members. The circumstances relied upon by the taxing authorities did not establish that the partnership was fictitious. Joint living and messing after disruption did not negate the partnership. Exclusive management by one partner was consistent with the express terms of the deed and did not invalidate the arrangement. Continuance of the bank account in the former name and by the same operator was likewise not inconsistent with the deed. Purchase of stamp papers before disruption and delayed registration under the Partnership Act were not legally material, since registration under that Act was not compulsory and was not a requirement for registration under section 26A. On the facts, there was no material to support the finding that the partnership was not genuine.

Conclusion: The partnership deed was a genuine transaction and not a sham; the assessee succeeded.

Ratio Decidendi: A partnership cannot be treated as sham merely because the partners continue to live together, one partner manages the business under the deed, the bank account remains in the former style, or the firm is not registered under the Partnership Act, if the deed and surrounding facts otherwise show a real partnership and there is no material to support a colourable arrangement.

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